Commentary

Anne Plested, head of Fidessa's EU Regulation Change programme, has written a short blog arguing that although we should be thankful that ESMA have taken a pragmatic approach to moving things along, more bottlenecks could appear in the future.

What Do You Do When Computers Don't Speak? FIX Is the Answer for Buy-Side and Sell-Side Trading D

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What Do You Do When Computers Don't Speak? FIX Is the Answer for Buy-Side and Sell-Side Trading D

A standard computer format embedded in order-routing, pre-trade indications and other dealer programs is solving a vexing problem, initially triggered by the upsurge in U.S. equity transaction volume.

Facing expensive bottlenecks in the early 1990s, trading desks scrambled to more fully automate the order-flow process, as increasing volume exceeded the capacity of human traders to handle the business efficiently.

The mission seemed straightforward, except for one thing: the electronic systems used by buy-side and sell-side firms to deliver and receive each others data often were incompatible. Many sell-side desks, in fact, had to customize their computers to receive instructions from buy-side clients.

Meanwhile, the telephone and the fax machine, hardly cutting edge, often were the only data-delivery mechanisms that circumvented the problem.

The solution? Overlaying the programs with similar lines of computer code.

These lines of code are the FIX protocol, named for the U.S. Financial Information Exchange Steering Committee that rushed to the rescue when computers at U.S. brokerages and their mutual-fund clients were not always on speaking terms.

The Past

Prior to FIX, sending and receiving allocation instructions, indications of interest, or IOIs (for example, a willingness by the sellside to buy 5,000 shares of Intel or to sell 2,500 shares of Microsoft) and order-execution reports in a real-time electronic form was problematic.

Back then, one of the best-known types of common protocol, or messaging standard on Wall Street, was supported by the common message switch for listed orders routed by the New York Stock Exchange's SuperDot system.

But the FIX protocol didn't take long to take root in trading-room systems.

When the U.S. FIX Steering Committee of the FIX Protocol Organization that oversees FIX in the U.S. convened in New York in September, the attendees spent most of the two-hour meeting noting how the protocol is being adopted domestically and overseas.

Since FIX was introduced by ten major buy-side and sell-side firms (led initially by powerhouses Solomon Brothers on the sellside and Fidelity Management and Research Co. on the buyside), most large financial firms have introduced the protocol.

In essence, FIX consolidates a barrage of information users receive and deliver, often over dissimilar PC platforms.

"Information management is FIX's strongest advantage from the trader's perspective," said Mike Cormack, co-chairman of the U.S. FIX Steering Committee.

"It makes us smarter about where we go with our business, allows us to see more information from the brokerage community, and sort and act upon it based upon our workflow," added Cormack, who heads domestic equity trading at Kansas City-based American Century Investments.

FIX is also cost-efficient, since it reduces the need for sell-side traders to run dozens of leased lines to buy-side accounts.

"Traders can only make a certain number of phone calls at once. FIX gives them the ability on both sides of the [trade] to replace those calls with electronic notification," said Scott Saber, senior vice president at Lyndhurst, N.J.-based VIE Systems, which manufactures FIX-compliant middleware for financial-services firms. "That's important if you're a trader and you need to see all of the information your competitors are seeing."